Citigroup Upgrades Dish on DirecTV Talk

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Saying that there “is a greater chance” that the nation’s two biggest satellite providers may try to merge, Citigroup Wednesday issued a “buy” recommendation on EchoStar Communications’ stock.

Analyst Jason Bazinet upgraded EchoStar from a “sell” to a “buy,” with a $39-per-share price target. In afternoon trading Wednesday, EchoStar shares were at a new 52-week high, up 98 cents each to $32.99.

Bazinet made his recommendation change on the heels of a story in the Los Angeles Times that said there was speculation at the Allen & Co. media conference that Rupert Murdoch was working on a deal to buy EchoStar to combine it with DirecTV. Murdoch’s News Corp. owns 67% of DirecTV.

“Our upgrade does not reflect a change in our fundamental view of the [direct-broadcast satellite] industry,” Bazinet wrote in his report. “Rather, it reflects our belief that there is a greater chance that EchoStar and DirecTV may attempt to merge.”

Citigroup also estimated that such a merger could yield cost synergies of up to $3 billion per year, or $48 per share, “if DirecTV cedes 100% of synergy value to EchoStar.”

DirecTV, EchoStar and News Corp. have declined to comment on the Times story.

And Wall Street has questioned whether federal regulators would ever sign off on a DirecTV-EchoStar merger.

Sanford C. Bernstein & Co., in a report Wednesday, was skeptical about whether such a deal would pass regulatory muster.

“The News Corp. angle would create political complications,” wrote analyst Craig Moffett. “Without putting too fine a point on it, suffice it to say that handing what would be, by far, the largest distribution platform in the country to Rupert Murdoch [and Roger Ailes and company at FoxNews] might not sit well with the Democrats. That said, a merger certainly can’t be ruled out.”

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